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E&T reports from Jakarta, as a dispute over an order for Chinese aircraft threatens to delay construction of power plants in Indonesia, while 50 Chinese and foreign power companies vie for the contract to build a 10MW solar photovoltaic generation plant in the Gansu province.

China halts loans over contract row

A dispute over an order for Chinese aircraft is threatening to delay construction of power plants in Indonesia.

China is halting disbursement of funds under loans agreed to finance the construction of 35 coal-fired plants in retaliation for Indonesia's failure to honour a contract signed in June 2006 for the purchase of 15 Chinese-made Xinzhou-60 passenger aircraft.

Three financial institutions - Bank of China, China Export Import Bank (CEIB) and China Development Bank - agreed in April 2008 to provide loans totalling US$1.48bn to Indonesia's state-owned power firm PT Perusahaan Listrik Negara (PLN) to part-finance the construction of the plants - ten in Java and another 25 in remote parts of Indonesia - under the so-called 10,000MW Programme. The capacity of the plants will range from 14MW in Tanjung Balai Karimun, Riau, to 900MW in Indramayu, West Java.

To date, China has disbursed $610m through CEIB.

The contract for the aircraft was ordered by state-owned Merpati Nusantara Airlines and signed by Indonesia's Ministry of State Enterprises and the carrier with Xi'an Aircraft Industry Company (XAC).

Merpati took delivery and paid for two aircraft last year. It has, however, refused to accept the remaining 13, which have been assembled and parked outside the XAC facility in Shaanxi province, north-central China, since August 2008, saying the price of $14m per aircraft was too high. The airline has also refused to take the $60m soft loan agreed with CEIB to part-finance the purchase.

Better known as the MA-60, the turboprop regional aircraft is designed and built by state-owned China Aviation Industry Corp. XAC markets it and provides training for pilots and engineers.

Indonesia's Minister for Energy and Mineral Resources, Purnomo Yusgiantoro, told E&T that the Chinese banks want the Indonesian government to help resolve the dispute between Merpati and XAC immediately.

Purnomo said the Chinese banks will disburse the remaining $870m to PLN only after the Merpati-XAC dispute is sorted out.

A PLN official who declined to be named said China's withholding of the $870m is tantamount to holding the Indonesian company hostage. "The Merpati-XAC contract does not concern PLN and is a separate issue altogether," the official pointed out.

PLN has secured 65 per cent financing of the $8bn needed to build the 35 plants. Contracts for 32 plants have already been awarded, including two to Chinese-led consortia - China National Electric Equipment Corp to build the 700MW plant in Tanjung Awar-Awar in East Java, and Sinohydro Corp to construct the 220MW facility in Nagan Raya in Acheh. The contracts are worth $643m and $247m respectively.

Indonesian company PT Penta Adi Samudra is the local firm represented in both consortia. PLN will finance 15 per cent of the cost of the two plants, while the remaining 85 per cent will come through loans and bonds.

Construction of both plants started in September 2008. Under the initial schedule, the Acheh plant is to be operational in October 2010 and the East Java plant in January 2011.

The 10,000MW Programme is aimed at providing power more widely across Indonesia, where only 58 per cent of the 225 million people have access to electricity. An estimated 61 per cent live below the poverty line.

In spite of the expected delay in completing the plants, PLN is already planning a second 10,000MW Programme. It is currently finalising the number of plants to be built. Under this programme, almost half the capacity will be geothermal, with the rest split between gas, coal and hydro-power.

Purnomo said Indonesia's biggest problem would be financing.

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